Gemi 143 Pty Ltd v The Gosford Pty. Limited

Counsel for the Second and Fifth Defendants: Mr L Seelenmeyer of Independent Legal

Counsel for the Third Defendant: The Third Defendant did not appear

Counsel for the Fourth Defendant The Fourth Defendant did not appear

ORDERS NSD 891 of 2023 IN THE MATTER OF THE GOSFORD PTY. LIMITED (RECEIVERS AND MANAGERS APPOINTED)

BETWEEN: GEMI 143 PTY LTD First Plaintiff

GEMI 144 PTY LTD Second Plaintiff

GEMI 149 PTY LTD Third Plaintiff

AND: THE GOSFORD PTY. LIMITED (RECEIVERS AND MANAGERS APPOINTED) First Defendant

AQUAMORE SERVICING PTY LTD Second Defendant

SHINETEC (AUSTRALIA) PTY LTD (and another named in the Schedule) Third Defendant

order made by: HALLEY J DATE OF ORDER: 3 November 2023

1. Pursuant to rule 9.05(1) of the Federal Court Rules 2011 (Cth) (Rules), the plaintiffs be granted leave to join Aquamore Credit Equity Pty Ltd (ACN 609 876 940) in its capacity as trustee for the Spring Park Unit Trust, as the fifth defendant in these proceedings.
2. Leave be granted to the plaintiffs to amend the originating process filed in these proceedings and dated 21 August 2023 and to file in Court the amended originating process in the form initialled by Justice Halley.
3. Pursuant to r 1.34 of the Rules, the requirements under rr 2.3, 2.4, and 2.7 of the Federal Court (Corporations) Rules 2000 (Cth) be dispensed with. Gemi 143 Pty Ltd
4. Pursuant to s 588FM of the Corporations Act 2001 (Corporations Act), 15 August 2023 be fixed, for the purposes of s 588FL(2)(b)(iv) of the Corporations Act, as "the later time" of the registration on the Personal Property Securities Register (PPSR) by the first plaintiff of the security interests (both in respect of "Personal Property" and the "Other Property") granted by the first defendant to the first plaintiff pursuant to the General Security Deed dated 11 December 2019 (General Security Deed) between the first plaintiff as the secured party and the first defendant as the grantor. Gemi 144 Pty Ltd
5. Pursuant to s 588FM of the Corporations Act, 15 August 2023 be fixed, for the purposes of s 588FL(2)(b)(iv) of the Corporations Act, as "the later time" of the registration on the PPSR by the second plaintiff of the security interests (both in respect of "Personal Property" and the "Other Property") granted by the first defendant to the second plaintiff pursuant to the General Security Deed between the second plaintiff as the secured party and the first defendant as the grantor. Gemi 149 Pty Ltd
6. Pursuant to s 588FM of the Corporations Act, 15 August 2023 be fixed, for the purposes of s 588FL(2)(b)(iv) of the Corporations Act, as "the later time" of the registration on the PPSR by the third plaintiff of the security interests (both in respect of "Personal Property" and the "Other Property") granted by the first defendant to the third plaintiff pursuant to the General Security Deed between the third plaintiff as the secured party and the first defendant as the grantor. The Gosford Pty Limited (Receivers and Managers Appointed)
7. If, within 6 months of the end of the extended period referred to in orders 2, 4, and 5 of these Orders, any winding up of the first defendant occurs, or an administrator is appointed to the first defendant under s 436A, s 436B, and s 436C of the Corporations Act, or the first defendant executes a deed of company arrangement, liberty is reserved to any liquidator, administrator or deed administrator of the first defendant to discharge or vary orders 2, 4, and 5.
8. The plaintiffs pay the costs of the second and fifth defendants fixed in the amount of $5,000.
9. Otherwise, there be no order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

A. Introduction 1 On 3 November 2023, I made orders pursuant to s 588FM of the Corporations Act 2001 (Cth) (Act) on the application of the plaintiffs, Gemi 143 Pty Ltd, Gemi 144 Pty Ltd and Gemi 149 Pty Ltd. The orders provided for the fixing of a "later time" for the purposes of s 588FL(2)(b)(iv) of the Act for the registration on the Personal Property Securities Register (PPSR) of certain security interests of the plaintiffs registered on 14 August 2023. 2 The second and fifth defendants consented to the orders sought by the plaintiffs. There was no appearance by the first, third and fourth defendants. 3 These are my reasons for making those orders.

B. Background 4 On 11 December 2019, each of the plaintiffs entered into a first mortgage loan agreement and a general security deed (GSD) with The Gosford Pty. Ltd (Receivers and Managers Appointed) (The Gosford). 5 On 15 January 2020, the plaintiffs advanced funds to The Gosford for the purpose of financing the development of a property in Gosford, New South Wales, known as "The Archibald". 6 On 22 January 2022, Garth Andrews, a junior solicitor employed by Toltz Lawyers, the plaintiffs' former solicitors, registered the plaintiffs' security interests under each GSD on the PPSR (initial registrations). The initial registrations were made within time, and in proper form but nominated an end date of 15 January 2022. Item 5 of s 153 of the Personal Property Securities Act 2009 (Cth) (PPSA) provides that registrations of security interests under the PPSR may be made with "no stated end time". The plaintiffs had no intention that the initial registrations should be short-term registrations and had assumed that the initial registrations would be for the maximum period possible under the PPSA. 7 On 26 July 2021, the plaintiffs appointed receivers and managers to The Gosford. 8 On 20 December 2022, the plaintiffs first became aware that the initial registrations had lapsed immediately after 15 January 2022, being the "end time" that had been selected. 9 In the period between 20 December 2022 and 8 February 2023, the plaintiffs and their current solicitors pursued various enquiries, including with Toltz Lawyers, in an attempt to ascertain why the initial registrations had lapsed and why a period of only two years had been entered as an end date. Notwithstanding frequent requests, there was considerable delay by Toltz Lawyers in providing their files for the initial registrations to the plaintiffs. 10 On 14 August 2023, the plaintiffs arranged for new registrations to be entered on the PPSR (new registrations) to mirror the lapsed initial registrations. Those new registrations were made significantly outside the time provided for registration pursuant to s 588FL(2)(b)(ii) of the Act (which was, relevantly, 20 business days after the security agreement that gave rise to the security interest came into force - being 20 business days after settlement of the transactions on 15 January 2020, or 12 February 2020). 11 As already noted, the new registrations were in fact made more than three years later, on 14 August 2023. In the absence of the orders sought by the plaintiffs being made, they are at risk of those securities vesting in The Gosford in the event of a subsequent winding up of that company.

C. Evidence 12 The plaintiffs relied on affidavits from the following witnesses: (a) Garth Andrews (a former employee of Toltz Lawyers) affirmed on 21 August 2023; (b) Hamish Tweedy (the Head of Credit of Gemi Investments Pty Ltd) affirmed on 18 August 2023; (c) Justin Epstein (a director of each of the plaintiffs) sworn on 17 August 2023; and (d) Peter Harrison (a partner of Thomson Geer and the solicitor for the plaintiffs) sworn on 21 August 2023 and a second affidavit sworn on 30 August 2023. 13 The plaintiffs also relied on affidavits of service on the third and fourth defendants.

D. Legal principles 14 Section 588FM of the Act provides: Extension of time for registration (1) A company, or any person interested, may apply to the Court (within the meaning of section 58AA) for an order fixing a later time for the purposes of subparagraph 588FL(2)(b)(iv). … (2) On an application under this section, the Court may make the order sought if it is satisfied that: (a) the failure to register the collateral earlier: (i) was accidental or due to inadvertence or some other sufficient cause; or (ii) is not of such a nature as to prejudice the position of creditors or shareholders; or (b) on other grounds, it is just and equitable to grant relief. (3) The Court may make the order sought on any terms and conditions that seem just and expedient to the Court. 15 In summary, the Court may make an order fixing a subsequent date under s 588FM(2) if it is satisfied that: (a) the failure to register the collateral earlier was accidental or due to inadvertence or some other sufficient cause; (b) there is no prejudice to the position of creditors; or (c) it is otherwise just and equitable to grant relief. 16 The three grounds are not cumulative. It is sufficient if any one of those grounds can be satisfied. 17 The reference to "inadvertence" in s 588FM(2)(a)(i) can include a failure to advert to or understand the legal requirements for registration: Elimatta Pty Ltd v NT Bullion Pty Ltd, in the matter of NT Bullion Pty Ltd [2021] FCA 1416 at [5] (Yates J). The concept of "inadvertence" encompasses innocent human error, lack of oversight, an active but incorrect consideration of a requirement, a failure to turn one's mind to the requirement or a failure to appreciate the true significance of non-compliance with a requirement, so long as such a failure is not intended to flout, or is recklessly indifferent to proper compliance: Bluewaters Power 1 Pty Ltd v The Griffin Coal Mining Company Pty Ltd [2019] WASC 438 at [40] (Vaughan J), citing National Australia Bank Limited v Davis & Waddell (Vic) Pty Ltd [2003] VSC 1 at [65] (Hansen J); ACE Funding Ltd [2003] FCA 59 at [8] (Conti J); Commonwealth Bank of Australia v HM Aircraft Holdings Pty Ltd [2021] FCA 447 at [64] (Beach J). 18 An extension order under s 588FM(2) may operate to the detriment of unsecured creditors if the grantor of the security goes into liquidation or administration within six months of the security interest being perfected because the order would prevent the security interest otherwise vesting in the grantor for their benefit: Elimatta at [6].

E. Relevant inadvertence 19 The following summary of the matters relied upon by the plaintiffs as constituting the relevant inadvertence emerges from the affidavits of Mr Andrews, Mr Tweedy and Mr Epstein. 20 In or about December 2019, the plaintiffs retained Toltz Lawyers to prepare loan and security documents to govern their proposed provision of finance to The Gosford. 21 Gerrard Toltz was the sole principal of Toltz Lawyers. The only employees of the firm were Mr Andrews, a solicitor who was admitted to practice in December 2014, another solicitor with similar experience to Mr Andrews, and Ms Lockley, the office manager and receptionist. 22 Mr Tweedy has been employed by Gemi Investments Pty Ltd (Gemi Investments) as the Head of Credit since approximately September 2019. He has worked in the property banking and finance industry since 1995. 23 Companies associated with Gemi Investments, including the plaintiffs, provided short-term bridging finance, primarily in relation to the development of residential and commercial property. 24 Toltz Lawyers and Gemi Investments occupied offices on different floors of a building in Neutral Bay, Sydney. 25 Mr Tweedy instructed Mr Andrews to prepare the loan agreements and security documents for the proposed advance to be made by the plaintiffs to The Gosford to fund the development of "The Archibald". 26 Mr Andrews was solely responsible for entering the initial registrations on the PPSR and was advised by Ms Lockley that a two-year registration was "more than sufficient". Based on that advice from Ms Lockley, Mr Andrews adopted a practice of registering personal property security interests on the PPSR for "two years or approximately two years". 27 Mr Tweedy assumed that Toltz Lawyers in registering the security documents for the advance to The Gosford would "take all such steps as were necessary or appropriate to protect the interests" of Gemi Investments and the plaintiffs. Mr Tweedy made this assumption because he understood that Toltz Lawyers were responsible for "overseeing the legal aspects of the relevant transactions in a way which would give maximum protection to Gemi Investments and the plaintiffs". Prior to preparing his affidavit in this proceeding and being shown the PPSR Registration Number Certificates, Mr Tweedy did not know that registrations on the PPSR could have an end date as he had previously assumed that PPSR registrations, once effected, would "exist in perpetuity or until they were discharged (like a mortgage or guarantee)". 28 Throughout most of his career, Mr Tweedy has worked with firms that utilised an in-house legal team or external lawyers to provide advice in relation to security interest issues. As a result, he had not had reason to consider the "practicalities of personal property security interests in detail". 29 Mr Tweedy did not give any instructions to Toltz Lawyers and Toltz Lawyers did not seek any instructions from him in relation to the registration of the personal property security interests granted by The Gosford to the plaintiffs. 30 Mr Tweedy gave evidence that: Had Garth Andrews, or anyone else, told me at any time that he intended to register, or had registered, the PPSR Registrations with an end date of 15 February 2022, I would not have agreed to that approach, because I would have considered it inadequate. Even though the loans to The Gosford were for short terms, I knew, based on my experience in the finance sector, that a lender should not agree to an expiry date on any security it had taken unless and until conditions within the loan documentation relevant to the release of that security had been satisfied including repayment of the loan and that borrowers do not always repay their loans on time and that full repayment could in some circumstances take a very long time - sometimes longer than two years. Instead, I would have insisted that the PPSR Registrations be registered in perpetuity or otherwise for the longest period possible. 31 The plaintiffs did not become aware until 14 December 2022 that the security interests that had been granted by The Gosford were no longer registered on the PPSR. Mr Harrison informed Mr Epstein on that date, in the course of preparing to send letters to the remaining secured creditors of The Gosford to inform them that he had obtained an updated PPSR Grantor search for The Gosford that recorded that the initial registrations had been removed from the PPSR on 15 January 2022. 32 Mr Epstein gave evidence that if he had learnt that the plaintiffs' security interests had only been registered for a period of approximately two years he would have (a) immediately asked questions of Mr Tweedy, and if necessary, Toltz Lawyers, as to why the initial registrations had only been effected for two years, and (b) he would have promptly sought legal advice as to the effect of registration for only two years and what protection might be available to the plaintiffs.

F. Consideration 33 The plaintiffs submitted that each of the three relevant factors in s 588FM were satisfied in this case. 34 I was satisfied that the failure to register the initial registrations for a period longer than 2 years constituted "inadvertence" for the purposes of s 588FM of the Act. The failure of the plaintiffs to advert to the period in which the initial registrations had been registered was not deliberate or due to any reckless disregard of statutory obligations. Rather, it was due to a lack of knowledge on the part of Mr Tweedy that PPSR registrations could be registered for fixed periods and an erroneous working assumption of Mr Andrews that a period of two years would be "more than sufficient". In short, the "inadvertence" was the failure of Mr Tweedy to provide instructions on the length of time for the initial registrations to be registered and the failure of Mr Andrews to seek instructions on the issue. I am satisfied, that had such instructions been provided or sought, Mr Tweedy would not have agreed to any confined period for the initial registrations. Equally, I am satisfied that had the issue been raised with Mr Epstein, he would have sought the maximum protection for the initial registrations and would not have agreed to any confined period. 35 I was also satisfied that the extension orders sought by the plaintiffs were not of such a nature as to cause prejudice to the position of creditors or shareholders. 36 First, orders made pursuant to s 588FM of the Act have no effect on the priority of the underlying security interest: Von Arx v Todae Solar Pty Ltd, in the matter of Todae Solar Pty Ltd (Administrators Appointed) [2020] FCA 1071 at [10] (Jagot J). Hence, the interests of the second defendant, Aquamore Servicing Pty Ltd, which holds two PPSR registrations over The Gosford dated 4 November 2019 and 21 September 2020, will not be affected and the rights of the plaintiffs to security under the transaction documents remain unchanged as against The Gosford. 37 Second, any person conducting a search of The Gosford in the PPSR would have seen the original registrations and thus would have been aware of the existence of the initial registrations: see One Corporate Trust Services Ltd v MSLP Assets Pty Ltd in its capacity as trustee for the MSLP Assets Trust [2022] FCA 555 at [36] (Beach J). The third defendant, Shinetec (Australia) Pty Ltd, could, therefore, not relevantly be prejudiced because at the time it obtained its PPSR registration on 23 December 2020, the plaintiffs' initial registrations had appeared on the PPSR for nearly a year. 38 Third, since being joined as the fourth defendant, ATF Services Pty Ltd has discharged its security over The Gosford. 39 Fourth, the plaintiffs also sought an order that liberty be reserved to any liquidator, administrator or deed administrator to apply to vary or discharge the proposed extension orders if (a) within six months of the end of the extended period, the subject of the orders sought, liquidators or administrators are appointed to The Gosford, or (b) The Gosford executes a deed of company arrangement. 40 Finally, I was also satisfied that it would be just and equitable to make orders extending the time for registration of the plaintiffs' security interests because of the lack of any prejudice, the issue arose due to "inadvertence" and the plaintiffs had provided a satisfactory explanation for the delay in arranging for the new registrations to be entered on the PPSA. The substantial delay between the expiration of the initial registrations in January 2022 and the applications in August 2023 was largely due to a lack of awareness of the initial two-year fixed period and difficulties encountered in obtaining access to the files of Toltz Lawyers.

G. Disposition 41 For the foregoing reasons, I made orders substantially in the form sought by the plaintiffs pursuant to s 588FM(2) of the Act. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley.

SCHEDULE OF PARTIES NSD 891 of 2023 Defendants Fourth Defendant: ATF SERVICES PTY LTD Fifth Defendant: AQUAMORE CREDIT EQUITY PTY LTD ACN 609 876 940